Last Updated: February 18, 2016
Application: A statement of information made by someone applying for life insurance. The information gathered helps the life insurance company assess whether the risk presented by the applicant is acceptable.
Automatic Premium Loan: A provision in a life insurance policy that any premium not paid by the end of the grace period (usually 31 days) is automatically paid by a policy loan if there is sufficient cash value.
Beneficiary: The person or financial instrument (for example, a trust fund), named in the policy as the recipient of insurance money in the event of the insured’s death.
Cash Value: The guaranteed amount of cash available upon surrender or loan before it becomes payable upon death.
Claim: Notification to an insurance company that payment of an amount is due under the terms of the policy.
Declination: The rejection by a life insurance company of an application for life insurance, usually for reasons of health or occupation.
Disability Benefit: A feature added to some life insurance policies providing for waiver of the due premium if the insured becomes totally and permanently disabled.
Dividend: An amount of money returned to the policyholder. Operating as a mutual life insurance company, the money is considered a refund of the premium overcharge. It results from actual mortality, interest, and expenses that were more favorable than expected when the premiums were established.
Face Amount: The amount stated on the insurance policy that will be paid in the event of death. It does not include dividend additions or additional amounts payable under other special provisions.
Grace Period: A period (usually 31 days) following each premium due date, other than the first due date, during which an overdue premium may be paid. All provisions of the policy remain in force throughout this period.
Insurability: Acceptability by the company of an applicant for insurance.
Insured: The person on whose life the policy is issued and covers.
Lapsed Policy: A policy terminated at the end of the grace period because of nonpayment of premium and no value to be loaned against to cover the due premium.
Life Expectancy: The average number of years of life remaining for a group of people of a given age according to a particular mortality table.
Mortality Table: A statistical table showing a death rate (probability of death) at each age and sex.
Policy: The printed legal document issued to the policyholder by the company stating the terms of the insurance contract.
Policy Loan: The amount that can be borrowed at a specified rate of interest from the issuing company by the policyholder, which uses the cash value of the policy as collateral for the loan. In the event the insured dies with the debt partially or fully unpaid, the insurance company deducts the amount borrowed, plus any accumulated interest, from the claim amount payable.
Policyholder: The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.
Premium: The payment, or one of the regular periodic payments, that a policyholder makes to provide insurance coverage in a policy.
Risk Classification: The process by which a company decides how its premium rates for life insurance should differ according to the characteristics of individuals insured (for example, age, occupation, sex, state of health) and then applies the resulting rules to individual applications. (See underwriting.)
Term Insurance: A type of insurance that covers the insured for a temporary period of time (term). The policy pays death benefits only if the insured dies during the term.
Underwriting: The process of classifying applicants for insurance by identifying such characteristics as age, sex, health, occupation, and hobbies. People with similar characteristics are grouped together and are charged a premium based on the group’s level of risk. This process includes rejection or declination of unacceptable risks.
Waiver of Premium: A policy provision that sets the condition under which an insurance policy will be kept in full force by the company without the payment of premiums. It is used by insureds who become totally and permanently disabled.
Whole Life Insurance: A type of insurance that provides insurance coverage for the lifetime of the insured. The premiums are payable for varying periods of time based on the plan of whole life selected. For example, a twenty payment life policy is payable for twenty years, but the coverage is for the insured’s lifetime as opposed to term insurance coverage which ceases after the specified term.